PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

        ImmunoGen's Common Stock is quoted on The Nasdaq National Market under the symbol IMGN. The table below sets forth the high and low bid prices on the Nasdaq National Market for our Common Stock for each of the quarters indicated.

        As of August 18, 2004, there were approximately 645 holders of record of the Company's Common Stock and, according to the Company's estimates, approximately 20,000 beneficial owners of the Company's Common Stock.

        The Company has not paid any cash dividends on its Common Stock since its inception and does not intend to pay any cash dividends in the foreseeable future.

Item 6.    Selected Financial Data

        The following table sets forth consolidated financial data with respect to the Company for each of the five years in the period ended June 30, 2004. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this report on Form 10-K.

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Overview

        Since the Company's inception, we have been principally engaged in the development of antibody-based cancer therapeutics and novel treatments in the field of oncology. The combination of our expertise in antibodies and cancer has resulted in the generation of both proprietary product candidates and technologies. Our lead, proprietary, tumor-activated prodrug, or TAP, technology combines extremely potent, small molecule cytotoxic agents with monoclonal antibodies that recognize and bind specifically to tumor cells. Our targeted delivery technology increases the potency of these cancer-specific antibodies, which allow our drugs to kill cancer cells with the potential to cause only modest damage to healthy tissue. The cytotoxic agent we currently use in our TAP compounds involved in clinical testing is the maytansinoid DM1, a chemical derivative of a naturally occurring substance called maytansine. We also use our expertise in antibodies and cancer to develop other types of therapeutics, such as naked antibody anticancer products.

        We have entered into collaborative agreements that allow companies to use our TAP technology to develop commercial product candidates containing their antibodies. We have also used our proprietary TAP technology in conjunction with our in-house antibody expertise to develop our own anticancer product candidates. Under the terms of our collaborative agreements, we are entitled to upfront fees, milestone payments and royalties on any commercial product sales. In July 2003, we announced a discovery, development and commercialization collaboration with Aventis Pharmaceuticals, Inc. Under the terms of the agreement, Aventis gains commercialization rights to three of the most advanced product candidates in our preclinical pipeline and the commercialization rights to certain new product candidates developed during the research program portion of the collaboration. This collaboration allows us to access Aventis' cancer targets and their clinical development and commercialization capabilities. Under the terms of the Aventis agreement, we also are entitled to receive committed research funding of approximately $50.7 million during the three-year research program. Should Aventis elect to exercise its contractual right to extend the term of the research program, we will receive additional research funding.

        Under certain collaborative agreements, we receive our fully burdened cost to manufacture preclinical and clinical materials plus a profit margin. Currently, our collaborative partners include Abgenix, Inc., Aventis, Boehringer Ingelheim International GmbH, Genentech, Inc. and Millennium Pharmaceuticals, Inc. We expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements.

        In August 2003, British Biotech completed its acquisition of Vernalis. In connection with the acquisition, the merged company, called Vernalis plc, announced that it intended to review its merged product candidate portfolio, including its collaboration with ImmunoGen on huN901-DM1. After discussion with Vernalis, in January 2004, the Company announced that ImmunoGen would take over future development of the product, which will include advancement of huN901-DM1 into a Phase I trial designed to assess its clinical utility in a hematological malignancy, in a study managed by ImmunoGen. Pursuant to the terms of the termination agreement dated January 7, 2004, Vernalis, which relinquished its right to the product candidate, will, at its own expense, complete the Phase I clinical study currently underway. ImmunoGen will be responsible for completion of the U.S. Phase I/II study in the United States and further development of huN901-DM1.

        On January 8, 2004, we announced that we intend to advance our lead product candidates, cantuzumab mertansine and huN901-DM1, into clinical trials to assess the clinical utility of the compounds in certain indications. In addition to continuation of the Phase I/II study of huN901-DM1 for SCLC underway in the United States, we plan to initiate a clinical trial of huN901-DM1 in a CD56-positive hematological malignancy in the United States in 2005. We also plan to advance cantuzumab mertansine, or an improved version of the compound, in clinical trials that we expect to

30

begin in 2005. We expect to incur expenses of $4-6 million over the next 2-3 years related to these clinical trials. Based upon the results of such clinical trials, if and when they are completed, we will evaluate whether to continue clinical development of these compounds, and, if so, whether we will seek a collaborative partner or partners to continue the clinical development and commercialization of either or both of these compounds.

        To date, we have not generated revenues from commercial product sales and we expect to incur significant operating losses over the foreseeable future. We do not anticipate that we will have a commercially approved product within the foreseeable future. Research and development expenses are expected to increase significantly in the near term as we continue our development efforts. As of June 30, 2004, we had approximately $94.6 million in cash and marketable securities. We anticipate that our current capital resources and future collaboration payments, including the committed research funding due us under the Aventis agreement over the three-year research program, will enable us to meet our operational expenses and capital expenditures for at least the next three to five fiscal years.

        We anticipate that the increase in total cash expenditures will be partially offset by collaboration-derived proceeds, including milestone payments and the committed research funding we will receive pursuant to the Aventis collaboration. Accordingly, period-to-period operational results may fluctuate dramatically. We believe that our established collaborative agreements, while subject to specified milestone achievements, will provide funding to assist us in meeting obligations under our collaborative agreements while also allowing for the development of internal product candidates and technologies. However, we can give no assurances that such collaborative agreement funding will, in fact, be realized. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to pursue additional strategic partners, secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects.

        On May 12, 2004 our Board of Directors terminated, effective immediately, the share repurchase agreement that it originally authorized in August 2002. Between August 2002 and May 2004 our Board of Directors had authorized the open market repurchase of up to 4.1 million shares of ImmunoGen common stock. The repurchases were made at the discretion of management and as market conditions warranted. Through May 12, 2004, the Company had repurchased 3,675,062 shares of its common stock at a total cost of $11.1 million.

Critical Accounting Policies

        We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our collaborative agreements and inventory. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

        We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

        We estimate the period of our significant involvement during development for each of our collaborative agreements. We recognize any upfront fees received from our collaborators ratably over this estimated period of significant involvement. We generally believe our period of significant involvement occurs between the date we sign a collaboration agreement and projected FDA approval of our collaborator's product that is the subject of the collaboration agreement. We estimate that this

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time period is generally six years. The actual period of our involvement could differ significantly based upon the results of our collaborators' preclinical and clinical trials, competitive products that are introduced into the market and the general uncertainties surrounding drug development. Any difference between our estimated period of involvement during development and our actual period of involvement could have a material effect upon our results of operations.

        We recognize the $12.0 million upfront fee we received from Aventis ratably over our estimated period of significant involvement of five years. This estimated period includes the term of the collaborative research program and two 12-month extensions that Aventis may exercise. In the event our period of involvement is less than we estimated, the remaining deferred balance of the upfront fee will be recognized over this shorter period.

        In January 2004, our shared product license with Vernalis plc terminated. As a result we recognized $1.5 million of revenue during the year ended June 30, 2004, related to the upfront fee that we received upon signing the original collaboration agreement with Vernalis, which was deferred for accounting purposes.

        In February 2003, our full product license with GlaxoSmithKline terminated. During the year ended June 30, 2003, we recognized $348,000 of revenue related to the GlaxoSmithKline upfront fee that remained in deferred revenue as of the termination date.

Inventory

        We review our estimates of the net realizable value of our inventory at each reporting period. Our estimate of the net realizable value of our inventory is subject to judgment and estimation. The actual net realizable value of our inventory could vary significantly from our estimates and could have a material effect on our financial condition and results of operations in any reporting period. We consider any raw material inventory of DM1, or related maytansinoid effector molecules, collectively referred to as DMx, or ansamitocin P3 in excess of 12 months' projected usage that is not supported by collaborators' firm fixed orders to be excess. We record any such raw material identified as excess at its net realizable value. Our estimate of 12 months' usage of DMx and ansamitocin P3 raw material inventory is based upon our collaborators' estimates of their future clinical material requirements. Our collaborators' estimates of their clinical material requirements are based upon expectations of their clinical trials, including the timing, size, dosing schedule and maximum tolerated dose of each clinical trial. Our collaborators' actual requirements for clinical materials may vary significantly from their projections. Significant differences between our collaborators' actual manufacturing orders and their projections could result in our actual 12 months' usage of DMx and ansamitocin P3 varying significantly from our estimated usage at an earlier reporting period. During the year ended June 30, 2004, we recorded as research and development expense $307,000 of ansamitocin P3 and DMx material that we have identified as excess based upon our inventory policy.

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Results of Operations

Revenues

        Our total revenues for the year ended June 30, 2004 were $26.0 million compared with $7.6 million and $5.9 million for the years ended June 30, 2003 and 2002, respectively. The $18.3 million increase in revenues from 2003 to 2004 is primarily attributable to committed research funding earned under our discovery, development and commercialization agreement with Aventis, in addition to higher revenues from license fees and higher clinical materials reimbursement, as discussed below. The $1.7 million increase in revenues from 2002 to 2003 is primarily attributable to higher license fee and milestone payments received in 2003 as compared to 2002.

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        Research and development support of $13.6 million for the year ended June 30, 2004 represents committed research funding earned based on actual resources utilized under our discovery, development and commercialization agreement with Aventis. The agreement provides that we will receive a minimum of $50.7 million of committed research funding during a three-year research program.

        Revenue from license fees and milestone payments for the year ended June 30, 2004 increased $1.4 million to $5.5 million from $4.2 million in the year ended June 30, 2003. Revenue from license fees and milestone payments for the year ended June 30, 2002 was $1.7 million. The increase in license fees and milestone payments from 2003 to 2004 is primarily attributable to the recognition of $2.0 million related to the amortization of the $12.0 million upfront fee received from Aventis. We recognize this upfront payment over our estimated period of significant involvement of 5 years. Also included in license fees and milestone payments for the year ended June 30, 2004, was $1.75 million of revenue related to our termination agreement with Vernalis which was executed in January 2004. Revenue of $1.5 million is related to the upfront fee that we received upon signing the original collaboration agreement with Vernalis, which was deferred for accounting purposes. The remaining $250,000 was recognized in June 2004 pursuant to our termination agreement with Vernalis.

        Included in license fees and milestone payments for the year ended June 30, 2003 is a $1.0 million milestone payment from Boehringer Ingelheim related to the initiation of clinical testing of the novel anticancer agent bivatuzumab mertansine and a $1.0 million milestone from Millennium related to the initiation of clinical testing of MLN2704. In addition, during the year ended June 30, 2003, we recognized collaboration revenue of $348,000 from GlaxoSmithKline that represents the portion of the upfront payment GlaxoSmithKline had previously paid to ImmunoGen that had not been recognized as revenue at the date of termination of the license agreement. We did not earn any similar milestone payments during the year ended June 30, 2002. Total revenue recognized from license fees and milestone payments from each of our collaborative partners in the years ended June 30, 2004, 2003 and 2002 is included in the following table:

        Deferred revenue of $21.1 million at June 30, 2004 represents payments received from our collaborators pursuant to our license and supply agreements which we have yet to earn pursuant to our revenue recognition policy.

        Clinical materials reimbursement increased $3.4 million to $6.6 million in the year ended June 30, 2004 compared to $3.2 million in the year ended June 30, 2003. We earned clinical materials reimbursement of $3.5 million during the year ended June 30, 2002. During the years ended June 30, 2004 and 2003, we shipped clinical materials in support of the huN901-DM1, bivatuzumab mertansine, and MLN2704 clinical trials, as well as preclinical materials, in support of the development efforts of certain other collaborators. The increase in clinical materials reimbursement in 2004 as compared to 2003 and 2002 is primarily related to the advancement of the clinical trials of bivatuzumab mertansine

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and MLN2704. Millennium initiated a second clinical trial, a multi-dose Phase I/II study, with its compound MLN2704 during the year ended June 30, 2004. Under certain collaborative agreements, we are reimbursed for our fully burdened cost to produce clinical materials plus a profit margin. The amount of clinical materials reimbursement we earn, and the related cost of clinical materials reimbursed, is directly related to (i) the number of on-going clinical trials for which we are producing clinical material for our collaborators, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials, and (ii) our production of clinical grade material on behalf of our collaborators, either in anticipation of clinical trials, or for process development and analytical purposes. As such, the amount of clinical materials reimbursement and the related cost of clinical materials reimbursed may vary significantly from quarter to quarter and annually.

        Development fees decreased $2,000 from $275,000 for the year ended June 30, 2003 to $274,000 for the year ended June 30, 2004. Development fees were $654,000 in the year ended June 30, 2002. To date, our development fees represent the fully burdened reimbursement of costs incurred in producing research-grade materials in accordance with Good Laboratory Practices and developing antibody-specific conjugation processes on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. Development fees decreased in 2004 and 2003 compared to 2002, primarily as a result of the advancement into clinical trials of bivatuzumab mertansine and MLN2704, the products that are the subject of our collaborations with Boehringer Ingelheim and Millennium, respectively. The amount of development fees we earn is directly related to the number of our collaborators and potential collaborators, the stage of development of our collaborators' products and the resources our collaborators allocate to the development effort. As such, the amount of development fees may vary widely from quarter to quarter and annually.

Research and Development Expenses

        We report research and development expense net of certain reimbursements we receive from our collaborators. Our net research and development expenses consist of (i) research to identify and evaluate new targets and to develop and evaluate new antibodies and cytotoxic drugs, (ii) preclinical testing and clinical trials of our own, and in certain instances, our collaborators' product candidates, and (iii) development related to improving clinical and commercial manufacturing processes. During the three fiscal years ended June 30, 2004, our research efforts have been primarily focused in the following areas:

•

Our activities pursuant to our discovery, development and commercialization agreement with Aventis;



•

Our contributions to the clinical development of huN901-DM1 and cantuzumab mertansine;



•

Process improvements related to clinical and commercial production of the huN901 antibody and huN901-DM1 conjugate;



•

Process improvements related to clinical and commercial production of the huC242 antibody and cantuzumab mertansine;



•

Process improvements to our TAP technology;



•

Preclinical development of our own potential products;



•

Process improvement related to the production of DM1 and related maytansinoid effector molecules and strain development of their precursor, ansamitocin P3;



•

Operation, maintenance and expansion of our pilot scale manufacturing plant;

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•

Identification and evaluation of potential antigen targets;



•

Evaluation of internally developed and in-licensed antibodies; and



•

Development and evaluation of additional cytotoxic agents.

        On January 8, 2004, we announced that pursuant to the terms and conditions of the termination agreement between Vernalis and ourselves, Vernalis relinquished its rights to develop and commercialize huN901-DM1. As a result, we have regained the rights to develop and commercialize huN901-DM1. Vernalis will complete the Phase I study currently underway. Effective July 1, 2004, we assumed responsibility for the weekly-dosing Phase I/II clinical study, Study 001. We expect to take steps to expedite the completion of Study 001. Additionally, we plan to initiate a clinical trial of huN901-DM1 in the United States for a CD56-positive hematological malignancy. We expect to incur expenses of approximately $800,000 related to clinical development of this product candidate during fiscal year 2005.

        In January 2003, we announced that we would regain the development and commercialization rights to cantuzumab mertansine from GlaxoSmithKline, thereby terminating our collaborative agreement. In January 2004, we announced that we plan to advance cantuzumab mertansine, or an improved version of the compound, into a clinical trial that we will manage. We expect that the clinical trial will be initiated in 2005. We estimate that we will incur expenses of approximately $2.1 million during fiscal year 2005 related to clinical development of this product candidate. We intend to evaluate whether to outlicense all or part of the development and commercial rights to this compound after the clinical trial is completed.

        As discussed above, we have licensed three of the most advanced product candidates in our preclinical pipeline to Aventis under the terms of our discovery, development and commercialization collaboration. Those three product candidates are a TAP compound for acute myeloid leukemia, an anti-IGF-IR antibody and a TAP compound for certain B-cell malignancies. The TAP compound for acute myeloid leukemia is in preclinical development. We believe that Aventis is on track to file an Investigational New Drug Application (IND) for this TAP compound in the first half of our fiscal year 2005. However, the continued development of the TAP compound for acute myeloid leukemia and the actual filing of this IND is subject to the development and clinical strategy established by Aventis, as well as the results of any and all preclinical studies. As a result, the timing of the filing of this IND, if it occurs at all, may vary from our estimates.

        Anti-IGF-IR antibody is a naked antibody directed against a target found on various solid tumors including certain breast, lung and prostate cancers. At June 30, 2004, pursuant to our collaboration research program with Aventis, we continued to perform preclinical experiments to evaluate candidate antibodies and identified a lead antibody product candidate and several alternate product candidates. The third, potential product candidate is directed at certain B-cell malignancies, including non-Hodgkin's lymphoma, and is in the early stages of preclinical development.

        The cost to develop new products and advance those products to the IND stage can be significant. Under the terms of our discovery, development and research collaboration with Aventis, they have licensed three of our most advanced preclinical product candidates. With the exception of those antibodies or antibody targets that are the subject of our preexisting or future collaboration and license agreements, during the term of our collaborative research program, we are required to propose for inclusion in the collaborative research program certain antibodies or antibody targets that we believe will have utility in oncology. Aventis then has the right to either include in or exclude from the collaborative research program these proposed antibodies and antibody targets. Furthermore, Aventis may only include a certain number of antibody targets in the research program at any one time. Aventis must therefore exclude any proposed antibody or antibody target in excess of this number. Over the original, three-year term of the research program, we will receive a minimum of $50.7 million

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of committed research funding and will devote a significant amount of our internal research and development resources to advancing the research program. Under the terms of the agreement, we may develop any TAP compound, antibody or antibody target that Aventis has elected not to either initially include or later advance in the research program. At present, the potential product candidates in our pipeline that are not part of the Aventis collaboration are in an early stage of discovery research and we are unable to accurately estimate which potential products, if any, will eventually move into our internal preclinical research program. We are unable to reliably estimate the costs to develop our potential products as a result of the uncertainties related to discovery research efforts as well as preclinical and clinical testing. Our decision to move a product candidate into the clinical development phase is predicated upon the results of preclinical tests. We cannot accurately predict which, if any, of the discovery research stage product candidates will advance from preclinical testing and move into our internal clinical development program. The costs to take a product through clinical trials is dependent upon, among other things, the medical indications, the timing, size and dosing schedule of each clinical trial, the number of patients enrolled in each trial, and the speed at which patients are enrolled and treated. In many cases, we are unable to determine what, if any, indication a particular product candidate will treat until we have completed extensive preclinical studies. Given the uncertainties related to new drug development, we are currently unable to estimate when, if ever, our research stage product candidates will generate revenues and cash flows.

        DM1 is the cytotoxic agent that we currently use in the manufacture of all of our TAP product candidates in clinical testing. We have also investigated the viability of other maytansinoid effector molecules, which, collectively with DM1, we refer to as DMx. In order to make commercial manufacture of DMx conjugates viable, we have devoted substantial resources to improve the strain of the microorganism that produces ansamitocin P3, the precursor to DMx, to enhance manufacturing yields. We also continue to devote considerable resources to improve other DMx manufacturing processes.

        We believe that our research and development costs by project are confidential and the disclosure of such costs could have a material negative effect on our ability to negotiate with our suppliers, collaborators and potential collaborators and, accordingly, do not disclose our individual project research and development expenses.

        Research and development expense for the year ended June 30, 2004 decreased $1.2 million to $22.2 million from $23.4 million for the year ended June 30, 2003. Research and development expense for the year ended June 30, 2002 was $17.7 million. Included in research and development expense for the year ended June 30, 2004 is $1.2 million of antibody that we purchased in anticipation of potential future clinical trials. Approximately $818,000 of the antibody payments made during fiscal 2004 related to the GMP production of antibody received from BioInvent for which we expect to receive reimbursement from Aventis, as discussed below in other income. Included in research and development expense for the year ended June 30, 2003 is $3.4 million of antibody that we purchased in anticipation of future clinical trials. Also included in research development expense for the year ended June 30, 2004 is $307,000 of ansamitocin P3 and DMx inventory that we have identified as excess based upon the Company's inventory policy. We also recorded a charge of $104,000, included as research and development expense in 2004, to record a certain batch of DM1 inventory at its net realizable value at June 30, 2004. During the same period in 2003, we recorded research and development expense of $1.7 million related to ansamitocin P3 and DM1 inventory that we had identified as excess. In 2002, we recorded charges of $1.5 million and $753,000 to reduce the value of cantuzumab mertansine inventory and huN901 prepaid assets and inventory, respectively, to their net realizable value.

        In fiscal 2002, we entered into several agreements with outside vendors to perform ansamitocin P3 and DMx process development. Included in the year ended June 30, 2004, 2003 and 2002 were $2.3 million, $3.0 million, and $1.1 million, respectively, of expenses related to ansamitocin P3 and DMx process development. Also included in research and development expense for the year ended

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June 30, 2002 was $2.5 million related to agreements with Morphosys AG, Genzyme Transgenics Corporation, Avalon Pharmaceuticals, Inc. and Raven Biotechnologies, Inc. supporting our internal research and development efforts. During the same period in 2003, we recorded $92,000 related to these agreements. No similar expense was recorded in fiscal year 2004.

        The number of research and development personnel increased to 116 at June 30, 2004 compared to 94 at June 30, 2003. We had 78 research and development personnel at June 30, 2002. Research and development salaries and related expenses increased by $1.8 million in the year ended June 30, 2004 compared to the year ended June 30, 2003 and increased by $2.0 million in the year ended June 30, 2003 compared to the year ended June 30, 2002. Included in salaries and related expenses for the year ended June 30, 2004 was $680,000 of bonuses awarded by the Board of Directors as compared to $320,000 of bonuses awarded by the Board of Directors in the same period in the prior year. Facilities expense also increased by $1.4 million during the year ended June 30, 2004 as compared to the same period in 2003 and increased $827,000 in the year ended June 30, 2003 compared to the year ended June 30, 2002 due to an increase in rent for the 128 Sidney Street lease and expenses related to our new location at 148 Sidney Street, Cambridge, Massachusetts. We expect future research and development expenses to increase as we continue development of our product candidates and technologies.

General and Administrative Expenses

        General and administrative expense for the year ended June 30, 2004 increased $674,000 to $6.6 million from $6.0 million for the year ended June 30, 2003. General and administrative expenses for the year ended June 30, 2002 were $5.4 million. There was an increase of approximately $412,000 in salary and related expenses in 2004 compared to 2003. This increase in salaries and related expenses was substantially related to $477,000 of bonuses awarded by the Board of Directors as compared to $64,000 in bonuses awarded by the Board of Directors in the same period in the prior year. Insurance costs increased by $163,000 in 2004 as a result of increased premiums. Recruiting fees of approximately $260,000 were incurred during the year ended June 30, 2004 related to our efforts to appoint a new director to our Board and to fill various open positions within the general and administrative functions as compared to $1,000 of similar fees in the year ended June 30, 2003. Offsetting these increases was a payment of $400,000 for the settlement of a legal claim asserted against the Company that was included in the general and administrative expense for the year ended June 30, 2003. The 10% increase in general and administrative expense from 2002 to 2003 was primarily due to this legal settlement payment made during 2003. In addition, facilities expense increased by $302,000 due to an increase in rent for the 128 Sidney Street lease and expenses related to our new location at 148 Sidney Street, Cambridge, Massachusetts. Included in general and administrative expense during the year ended June 30, 2002 is $209,000 related to a valuation allowance established to record cantuzumab mertansine inventory at its net realizable value.

Interest Income

        Interest income for the year ended June 30, 2004 decreased $1.3 million to $1.4 million from $2.7 million for the year ended June 30, 2003. Interest income for the year ended June 30, 2002 was $5.1 million. The decline in interest income from 2003 to 2004 and from 2002 to 2003 is, in each case, attributable to a lower average cash and investments balance combined with lower rates of return.

Net Realized (Losses) Gains on Investments

        Net realized (losses) gains on investments were $(58,000), $540,000, and $945,000 for the years ended June 30, 2004, 2003, and 2002, respectively. The decrease in net realized gains is attributable to the timing of investment sales.

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Other Income

        Other income for the year ended June 30, 2004 decreased $42,000, as compared to the year ended June 30, 2003. During the year ended June 30, 2004, we recorded as other income reimbursement of approximately $1.3 million from Aventis for the GMP production of antibody manufactured by BioInvent pursuant to its agreement with ImmunoGen and delivered during May 2004. Included in other income during the year ended June 30, 2003 is $1.4 million, which represents the net gain on the final financial settlement of the GlaxoSmithKline collaboration. Other income for the year ended June 30, 2002 was $53,000.

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Liquidity and Capital Resources

Cash Flows

        We require cash to fund our operating expenses, including advancement of our clinical programs, and to make capital expenditures. Historically, we have funded our cash requirements primarily through equity financings in public markets and payments from our collaborators, including equity investments, license fees, milestone payments and research funding. As of June 30, 2004, we had approximately $94.6 million in cash and short-term investments. Net cash used in operations during the year ended June 30, 2004 was $5.0 million compared to net cash used in operations of $21.9 million in the year ended June 30, 2003. The principal use of cash in operating activities for all periods presented was to fund our net loss. The decrease in operational cash use from 2003 to 2004 is substantially due to amounts received from Aventis, including the $12.0 million upfront fee received in August 2003 and $9.4 million of the $13.6 million of committed research funding we earned during the year ended June 30, 2004. We received $2.0 million in license fees and milestone payments during the year ended June 30, 2003. Net cash used in operations during the year ended June 30, 2002 was $16.0 million. The increase in operational cash use in 2003 compared to 2002 was largely due to the increase in operating expenses as well as the increase in clinical materials inventory produced on behalf of our collaborators.

        Net cash provided by investing activities was $1.1 million and $26.8 million for the years ended June 30, 2004 and 2003, respectively, and primarily represents the sales and maturities of marketable securities. Net cash used in investing activities was $11.3 million for the year ended June 30, 2002. Capital purchases were $2.0 million and $3.7 million for the fiscal years ended June 30, 2004 and 2003, respectively, and consisted primarily of costs associated with the build-out of our existing development and pilot scale manufacturing facility located in Norwood, Massachusetts, and the renovation of our new laboratory and office facility at 148 Sidney Street, Cambridge, Massachusetts.

        Net cash provided by financing activities was $599,000 for the year ended June 30, 2004. Net cash used for financing activities was $11.1 million for the year ended June 30, 2003 versus $6.1 million provided by financing activities for the year ended June 30, 2002. For the year ended June 30, 2004, net cash provided by financing activities includes proceeds from the exercise of 194,392 stock options. For the year ended June 30, 2003, net cash used for financing activities includes the repurchase of 3,675,062 shares of common stock for $11.1 million offset by proceeds from the exercise of 2,375 stock options. For the year ended June 30, 2002, net cash provided by financing activities includes proceeds from the exercise of 1,279,422 warrants and 150,336 stock options.

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        We anticipate that our current capital resources and future collaborator payments, including committed research funding that we expect to receive from Aventis pursuant to the terms of our collaboration agreement, will enable us to meet our operational expenses and capital expenditures for at least the next three to five fiscal years. We believe that our existing capital resources in addition to our established collaborative agreements will provide funding sufficient to allow us to meet our obligations under all collaborative agreements while also allowing us to develop product candidates and technologies not covered by collaborative agreements. However, we cannot provide assurance that such collaborative agreement funding will, in fact, be realized. Should we not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to pursue additional strategic partners, secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects.

Contractual Obligations

        Below is a table that presents our contractual obligations and commercial commitments as of June 30, 2004:

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Certain Factors That May Affect Future Results of Operations

        This report contains certain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on our current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. We caution investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, the following: the success of our and our collaborators' research and clinical development processes; the difficulties inherent in the development of pharmaceuticals, including uncertainties as to the timing, expense and results of preclinical studies and clinical trials; our dependence upon existing and potential collaborative partners; uncertainty as to whether our TAP compounds or those of our collaborators will succeed in entering human clinical trials and uncertainty as to the results of such trials; the risk that our and/or our collaborators may not be able to obtain regulatory approvals necessary to commercialize product candidates; the potential development by competitors of competing products and technologies; uncertainty whether our TAP technology will produce safe, effective and commercially viable products; the lack of assurance regarding patent and other protection for our proprietary technology; governmental regulation of our activities, facilities, products and personnel; the dependence on key personnel; uncertainties as to the extent of reimbursement for the costs of our potential products and related treatments by government and private health insurers and other organizations; the potential adverse impact of government-directed health care reform; the risk of product liability claims; and economic conditions, both generally and those specifically related to the biotechnology industry. As a result, our future development efforts involve a high degree of risk. For further information, refer to the more specific risks and uncertainties discussed throughout this Annual Report on Form 10-K.

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Item 7A.    Quantitative and Qualitative Disclosure About Market Risk

        We maintain an investment portfolio in accordance with our Investment Policy. The primary objectives of our Investment Policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Although our investments are subject to credit risk, our Investment Policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. Our investments are also subject to interest rate risk and will decrease in value if market interest rates increase. However, due to the conservative nature of our investments and relatively short duration, interest rate risk is mitigated. We do not own derivative financial instruments in our investment portfolio.

        Accordingly, we do not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this item.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of ImmunoGen, Inc.

        We have audited the accompanying consolidated balance sheets of ImmunoGen, Inc. as of June 30, 2004 and 2003, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2004. Our audit also included the financial statement schedule in the Index at Item 15(a). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ImmunoGen, Inc. at June 30, 2004 and 2003, and the consolidated results of its operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the three years in the period ended June 30, 2004, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Boston, Massachusetts

July 26, 2004

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IMMUNOGEN, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the consolidated financial statements.

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The accompanying notes are an integral part of the consolidated financial statements.

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

        The accompanying notes are an integral part of the consolidated financial statements.

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of the consolidated financial statements.

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IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2004

A. Nature of Business and Plan of Operations

        ImmunoGen, Inc. was incorporated in Massachusetts in 1981 to develop, produce and market commercial anticancer and other pharmaceuticals based on molecular immunology. The Company continues to research and develop its various products and technologies and does not expect to derive revenue from commercial product sales within the foreseeable future. It is anticipated that the Company's existing capital resources, enhanced by collaborative agreement funding, will enable current and planned operations to be maintained for at least the next three to five fiscal years. However, if the Company is unable to achieve subsequent milestones under its collaborative agreements (see Note C), the Company may be required to defer or limit some or all of its research, development and/or clinical projects.

        The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, the development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, manufacturing and marketing limitations, collaboration arrangements, third-party reimbursements and compliance with governmental regulations.

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B. Summary of Significant Accounting Policies

Principles of Consolidation

        The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, ImmunoGen Securities Corp. All intercompany transactions and balances have been eliminated. During June 2004, the Company acquired the remaining 3% of its subsidiary, Apoptosis Technology, Inc., or ATI, which it did not own. ATI was merged into ImmunoGen, Inc. in June 2004. For accounting purposes, this was considered a merger of entities under common control, and since ATI had historically been consolidated, there was no accounting consequence to this transaction.

Reclassifications

        Prior period amounts have been adjusted to conform to the current year presentation. There was no impact on net loss in any period.

Revenue Recognition—Change in Accounting Principle

        Effective July 1, 2000, ImmunoGen changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). Under the new accounting method, the Company recognizes revenue from non-refundable, upfront license payments, not specifically tied to a separate earnings process, ratably over the term of the Company's substantial involvement during development. The cumulative effect of the change in accounting on prior years resulted in a non-cash charge to income of $5.7 million, which was included in the net loss for the year ended June 30, 2001. Included in revenue for the years ended June 30, 2004, 2003 and 2002 is $643,000, $1.1 million and $859,000, respectively, of revenue that was recognized in years prior to the Company's adoption of SAB 101 and included in the cumulative effect of the change in accounting principle.

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Revenue Recognition

        The Company enters into out-licensing and development agreements with collaborative partners for the development of monoclonal antibody-based cancer therapeutics. The terms of the Company's agreements contain multiple elements which typically include non-refundable license fees, payments based upon the achievement of certain milestones and royalties on product sales. For multiple-element arrangements entered into after July 1, 2003, the Company applies EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The Company evaluates such arrangements to determine if the deliverables are separable into units of accounting and then applies applicable revenue recognition criteria to each unit of accounting.

        At June 30, 2004, the Company currently has the following three types of collaborative contracts with the counterparties identified below.

•

License to a single target antigen (single target license):



•

Boehringer Ingelheim International GmbH



•

Genentech, Inc.



•

Millennium Pharmaceuticals, Inc.



•

Broad option agreements to acquire rights to a limited number of targets over a specified time period (broad license):



•

Abgenix, Inc.



•

Genentech, Inc.



•

Millennium Pharmaceuticals, Inc.



•

Broad agreement to discover, develop and commercialize antibody-based anticancer products:



•

Aventis Pharmaceuticals, Inc.

        All of these collaboration agreements provide that the Company will (i) manufacture preclinical and clinical materials for its collaborators, at the collaborators' request and cost, (ii) receive payments upon the collaborators' achievements of certain milestones and (iii) receive royalty payments, generally until the later of the last applicable patent expiration or 12 years after product launch. The Company is required to provide technical training and any process improvements and know-how to its collaborators during the term of the collaboration agreements. Practically, once a collaborator receives U.S. Food and Drug Administration (FDA) approval for any drug and the manufacturing process used to produce the drug, the collaborator will not be able to incorporate any process improvements or know-how into its manufacturing process without additional testing and review by the FDA. Accordingly, the Company believes that it is very unlikely that its collaborators will require the Company's services subsequent to FDA approval.

        Generally, upfront payments on single target licenses are deferred over the period of the Company's substantial involvement during development. ImmunoGen employees are available to assist the Company's collaborators during the development of their products. The Company estimates this development phase to begin at the inception of the collaboration agreement and conclude when the

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product receives FDA approval. The Company believes this period of involvement is, on average, six years. At each reporting period, the Company analyzes individual product facts and circumstances and reviews the estimated period of its substantial involvement to determine whether a significant change in its estimates has occurred and adjusts the deferral period accordingly. In the event that a single target license were terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue at the date of such termination.

        The Company defers upfront payments received from its broad option agreements over the period during which the collaborator may elect to receive a license. These periods are specific to each collaboration agreement, but are between seven and 12 years. If a collaborator selects an option to acquire a license under these agreements, any option fee is deferred and recorded over the life of the option, generally 12 to 18 months. If a collaborator exercises an option and the Company grants a single target license to the collaborator, the Company defers the license fee and accounts for the fee as it would an upfront payment on a single target collaboration agreement, as discussed above. In the event that a broad option agreement were terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue at the date of such termination.

        The Company's discovery, development and commercialization agreement with Aventis provides for an upfront payment of $12.0 million that Aventis paid to ImmunoGen in August 2003. The Company deferred the upfront payment and is recognizing it ratably over the period of the Company's substantial involvement, which the Company estimates to be five years, the term of the collaborative research program, in addition to two 12-month extensions that Aventis may exercise. The discovery, development and commercialization agreement also provides that ImmunoGen will (i) receive committed research funding over a three-year period; (ii) manufacture preclinical and clinical materials for Aventis, at Aventis' request and cost; (iii) receive payments upon the collaboration's and/or Aventis' achievements of certain milestones and (iv) receive royalty payments until the last applicable patent expiration or 12 years after product launch. The committed research funding is based upon resources that ImmunoGen is required to contribute to the collaboration. The Company records the research funding as it is earned based upon its actual resources utilized in the collaboration.

        The Company's shared product license collaboration with Vernalis, the entity created by the merger of British Biotech and Vernalis, provided for an upfront payment to ImmunoGen that was paid upon signing of the agreement. As discussed further in Note C, pursuant to the terms and conditions of the termination agreement between Vernalis and the Company, in January 2004, Vernalis relinquished its rights to develop and commercialize huN901-DM1, the product subject to the product license. During the year ended June 30, 2004, the Company recognized revenue of $1.5 million for the upfront fee that was received upon signing the original collaboration agreement with Vernalis and deferred for accounting purposes. During the quarter and year ended June 30, 2004, the Company also recognized revenue of $250,000 pursuant to the Company's termination agreement with Vernalis.

        When milestone payments are specifically tied to a separate earnings process, revenue is recognized when the milestone is achieved. In addition, when appropriate, the Company recognizes revenue from certain research payments based upon the level of research services performed during the period of the research contract. Deferred revenue represents amounts received under collaborative

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agreements and not yet earned pursuant to these policies. Where the Company has no continuing involvement, the Company will record non-refundable license fees as revenue upon receipt and will record milestone revenue upon achievement of the milestone by the collaborative partner.

        The Company may produce preclinical and clinical materials for its collaborators and, at the collaborators' request, may perform process development work. The Company also produces preclinical material for potential collaborators under material transfer agreements. Generally, the Company is reimbursed for its fully burdened cost of producing these materials or providing these services. The Company recognizes revenue on preclinical and clinical materials when it has shipped the materials, the materials have passed all quality testing required for collaborator acceptance and title has transferred to the collaborator. The Company recognizes revenue on process development services as those services are performed.

Inventory

        Inventory costs primarily relate to clinical trial materials being manufactured for the Company's collaborators. Inventory is stated at the lower of cost or market as determined on a first-in, first-out (FIFO) basis.

        Inventory at June 30, 2004 and 2003 is summarized below:

        Inventory cost is stated net of a valuation allowance of $1.6 million and $1.1 million as of June 30, 2004 and June 30, 2003, respectively. The valuation allowance represents the cost of DM1 and other related maytansinoid effector molecules (collectively, DMx) that the Company considers to be excess based on current collaborator firm fixed orders and projections.

        DM1, the Company's most advanced small molecule effector drug, is the cytotoxic agent used in the TAP product candidates in clinical testing and is the subject of most of its collaborations. One of the primary components required to manufacture DM1 is its precursor, ansamitocin P3. Once manufactured, the ansamitocin P3 may then be converted to DM1 or other maytansinoid effector molecules.

        In fiscal 2002, the Company entered into several agreements with two outside vendors to perform large-scale manufacture of DMx and ansamitocin P3. Under the terms of these agreements, the manufacturers, together with the Company, will improve the fermentation and conversion processes used to generate ansamitocin P3 and DMx, respectively. Pursuant to these agreements, the two outside vendors will also manufacture, under current Good Manufacturing Practices, large-scale batches of ansamitocin P3 and DMx to be used in the manufacture of both the Company's and its collaborators'

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products. Once manufactured, the ansamitocin P3 is delivered from one vendor to the other vendor for conversion to DMx. The current agreements with these vendors expire at various dates through fiscal 2006.

        The actual amount of ansamitocin P3 and DMx that will be produced is highly uncertain. The Company currently anticipates that a significant amount of ansamitocin P3 and DMx will be manufactured for the Company for the foreseeable future at these or other manufacturers. If the Company's and the manufacturers' process development efforts are successful, the amount of ansamitocin P3 and/or DMx produced could be higher than expected and more than is required to support the development of the Company's and its collaborators' products. The Company anticipates that its investment in ansamitocin P3 and DMx will be significant.

        The Company produces preclinical and clinical materials for its collaborators either in anticipation or in support of clinical trials or for process development and analytical purposes. Under the terms of supply agreements with three of its collaborators, the Company generally receives rolling six-month firm-fixed orders for conjugate that the Company is required to manufacture and rolling 12-month manufacturing projections for the quantity of conjugate the collaborator expects to need in any given 12-month period. The amount of clinical material produced is directly related to the number of on-going clinical trials for which the Company is producing clinical material for its collaborators, the speed of enrollment in those trials and the dosage schedule of each clinical trial. As a result, the actual amount of conjugate that the Company manufactures can differ significantly from the collaborators' projections. To the extent that a collaborator has provided the Company with a firm fixed order, the collaborator is contractually required to reimburse the Company the full cost of the conjugate, and any margin thereon, even if the collaborator subsequently cancels the manufacturing run.

        The Company accounts for the DMx and ansamitocin P3 inventory as follows:

a)

That portion of the DMx and/or ansamitocin P3 that the Company intends to use in the production of its own products is expensed as incurred;



b)

To the extent that the Company has collaborator projections for no more than 12 months or firm fixed orders, the Company capitalizes the value of DMx and ansamitocin P3 that will be used in the production of conjugate subject to these firm fixed orders and/or projections;



c)

The Company considers more than a 12-month supply of ansamitocin P3 and/or DMx that is not supported by collaborators' firm fixed orders to be excess. The Company establishes a reserve to record any such excess ansamitocin P3 or DMx inventory at its net realizable value; and



d)

The Company also considers any other external factors and information of which it becomes aware and assesses the impact of such factors or information on the net realizable value of the DMx and ansamitocin P3 inventory at each reporting period.

        At June 30, 2004, the Company's on-hand supply of DMx and ansamitocin P3 (including $2.9 million of DMx and $1.6 million of ansamitocin P3) represented more than a 12-month supply based upon current collaborator firm fixed orders and projections. In the year ended June 30, 2004, the Company recorded as research and development expense $307,000 of ansamitocin P3 and DMx that the Company has identified as excess based upon the Company's inventory policy as described above. Any

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changes to the Company's collaborators' projections could result in significant changes in the Company's estimate of the net realizable value of DMx and ansamitocin P3 inventory. Reductions in collaborators' projections could indicate that the Company has additional excess DMx and/or ansamitocin P3 inventory and the Company would then evaluate the need to record further valuation allowances, included as charges to research and development expense, to record the DMx and/or ansamitocin P3 inventory at its estimated net realizable value.

Unbilled Revenue

        The majority of the Company's Unbilled Revenue at June 30, 2004 represents (i) committed research funding earned based on actual resources utilized under the Company's discovery, development and commercialization agreement with Aventis; and (ii) clinical materials that have passed quality testing, that the Company has shipped and title has transferred to the collaborator, but the Company has not yet invoiced. As of June 30, 2003, the majority of the Company's Unbilled Revenue represents clinical materials that have passed quality testing that the Company had shipped and title has transferred to the collaborator, but the Company had not yet invoiced. Also included in Unbilled Revenue are costs the Company has incurred in completing process development work on behalf of its collaborators but has not yet invoiced.

Other Current Accrued Liabilities

        Other current accrued liabilities consisted of the following at June 30, 2004 and 2003: